“Songshine was a kind of miracle. I was lucky enough to be part of making it happen.” — Gillian Moor
Moody’s Investors Service (Moody’s) has downgraded the corporate family and senior unsecured debt ratings for state owned energy company Petrotrin to Ba3 from Ba1. The ratings agency has also lowered Petrotrin’s baseline credit assessment (BCA) to b3 from b1.
Nymia Almeida, a VP-Senior Credit Officer at Moody’s, said the downgrades “reflect the company’s weak liquidity and high refinancing risk, triggered by persistent negative operating performance in the last couple of years.” She said the expectation is that this trend will continue given current market conditions.
“Petrotrin faced operating challenges which triggered significant losses in 2015, a year in which most refineries in the region posted higher crack margins due to low oil prices. In this context, and assuming that international oil prices will recover and compress the company’s operating margins further, and absent major investments that boost efficiency, we believe that the company’s cash generation will remain weak for the foreseeable future, increasing its reliance on external sources of funding,” added Almeida.
Moody’s said ratings on Petrotrin remain on review for downgrade, in line with Government of T&T’s credit ratings, which are also under review, due to the close relationship between the two entities. The agency said it will assess the possibility that Government “provides extraordinary support to its subsidiary on a timely manner in case of need.” It said Government’s ability to provide support to Petrotrin is measured by its Baa2 local currency rating and had been “weakened somewhat by the high dependence of the government and the company on credit factors that could cause stress to both simultaneously.”
“These assumptions currently result in a three notch uplift. Upon conclusion of this review, these assumptions and the final rating uplift might change,” Moody’s said.
The agency said the energy company’s b3 BCA is based on its view of its standalone credit strength, the cyclical nature of the company’s earnings and cash flows, inconsistent operating performance reflected in its low refinery utilization and the concentration risk of its reliance on a moderately-complex single refinery.
“The BCA also captures the small size and maturity of its hydrocarbon reserves, and its considerable investment needs given its mature asset base. However, the BCA also considers Petrotrin’s effective monopoly position in the wholesale distribution and export of refined petroleum products and the modest degree of operational integration provided by its exploration and production segment.
“The BCA is also supported by the company’s ability to generate significant foreign exchange through exports, and Trinidad and Tobago’s fairly supportive regulatory environment.”
Petrotrin was also downgraded by Moody’s in May 2015, just days after the rating’s agency downgraded the country’s bond and issue rating and changed T&T outlook from stable to negative. On that occasion the company’s senior unsecured debt corporate family ratings were lowered to Ba1 from Baa3 but its b1 BCA remained unchanged.